In JPMorgan's analysis of the stock market's trajectory for 2024, a scenario that once seemed unlikely is now appearing increasingly feasible, potentially overturning their initial bearish perspective.
Jason Hunter, JPMorgan's esteemed chart analyst, had a distinctly pessimistic outlook for the stock market as we approached 2024. He speculated that the S&P 500 would revisit its lowest point of the bear market, which occurred in October 2022, and anticipated a decline to 3,500 points. This projection was notably more cautious than the broader view at JPMorgan, which foresaw the S&P 500 dropping to 4,200 points in the coming year.
Hunter's skepticism stemmed from his observation that the recent rally in the stock market was disproportionately driven by a few large tech companies. This limited market participation in the rally raised concerns for him.
However, recent developments are starting to challenge Hunter's bearish stance. The broader stock market has recently surpassed significant resistance levels, suggesting a potential shift in market dynamics.
In a recent analysis, Hunter noted, "Our bearish outlook for the first half of the equity market is now on uncertain ground, particularly as we enter the final quarter of the year." At that time, he considered a rally in underperforming stocks to be highly improbable. Yet, contrary to his predictions, these so-called 'laggard' stocks have experienced notable gains since his forecast was published.
A key indicator of this shift is the performance of the small-cap Russell 2000 index. Traditionally lagging behind in this year's market rally, the Russell 2000 has started to outperform the S&P 500. Over the past week, it has risen by nearly 3%, while the S&P 500 has remained relatively stable. Over the past month, the Russell 2000 has gained approximately 7%, surpassing the S&P 500's 4.8% increase over the same period.
This trend suggests a potential investor shift towards previously underperforming stocks, which could significantly impact market dynamics. Hunter acknowledges this possibility, stating, "We are now closely monitoring the potential for large-cap stocks to show short-term distribution patterns in the early part of next year, as well as signs of a breakout in lagging stocks. If the latter occurs, it would necessitate a reevaluation of our forecast for 2024."
